WHETHER A post facto COMPLIANCE WILL CURE THE PROCEEDING?

[Mr. M. GOVINDARAJAN]

In ‘Super Iron Foundry Private Limited V. Union of India’ – 2017 (7) TMI 339 - CALCUTTA HIGH COURT  the present writ petition was filed by the writ petitioner challenging the order passed by the Chief Commissioner of Central Excise, Kolkata Zone.

The writ petitioner submitted the following before the High Court-

• The authorities are required to follow the procedure prescribed under the notification issued in respect of Central Excise Rules, 12CCC;
• The impugned orders recorded that the last hearing took place on 29.12.2016;
• Nonetheless the impugned order relies upon a report dated 02.02.2017;
• In addition to such report the impugned order records that there are two other reports dated 20.12.2016 and 21.12.2016;
• The copies of the three reports were not provided to the petitioner at the time of hearing;
• The Adjudicating Authority had acted in breach of the principles of Natural justice since he did not make over the copies of such reports to the petitioner;

The Revenue contended the following before the High Court-

• The writ petition is a premature one;
• The impugned order seeks to put in the restrictions as noted in the order;
• The final proceedings have not yet been undertaken;
• The respondents will be entitled to copies of such documents as are relied upon by the Department once the show cause notice is issued;
• Since the Department is yet to issue any show cause notice, the question of supply of such documents does not arise;
• If the documents are made available to the petitioner, then there is a possibility of the petition taking steps so as to render the proceedings infructuous;

The High Court heard both sides.  In this case a proceedings against the petitioner was sought to be undertaken under Rule 12CCC of the Central Excise Rules, 2002 read with Rule 12AA of the CENVAT Credit Rules, 2004.  The main allegation in this case is that the petitioner had availed of CENVAT credit on the strength of invoices which are doubtful.

The High Court analyzed the procedure to be followed in such proceedings as notified under Rule 12CCC. 

The said procedure provides that-

• The Principal Commissioner of Central Excise,after examination of records and other evidence, and after satisfying himself that the person has knowingly committed the offences as specified, may forward a proposal to the Principal Chief Commissioner of Central Excise to withdraw the facilities and impose restrictions during or for such period within 30 days of the detection of the case, as far as possible;
• The Principal Chief Commissioner shall examine the said proposal and after satisfying himself that the records and evidences relied upon in the said proposal re sufficient to form a reasonable belief that the person has knowingly done or contravened anything specified, may issue an order specifying the type of facilities to be withdrawn or type of restrictions to be imposed along with the period for which the said facilities will not be available or period for which restrictions shall be operative;
• The Principal Chief Commissioner before issuing the order shall given an opportunity of being heard to the person against whom the proceedings have been initiated and shall take into any representation made by such person before he issues the order.

The High Court observed that the procedure require an Adjudicating Authority to satisfy that the records and relevant documents are sufficient to arrive at a reasonable belief so as to take ma measure.  The procedure also requires the delinquent an opportunity of hearing.  The High Court further observed that an opportunity of hearing to a delinquent would encompass within the wake the materials sought to be relied upon against him in the proceeding to be made over to him so that the delinquent is in a position to make an effect representation on the charges made against him.

The requirement of the Adjudicating Authority to make available the materials on the basis of which the charges were made against the delinquent has been stated.  In this the required copies of the reports have not been made over to the petitioner in the proceedings resulting in the impugned order.

To this observation of the High Court the Union contended that the report dated 02.02.2017 may be a typographical errors.   The High Court was of the view that the investigations report dated 20.12.2016 and 21.12.2016 has not been made available to the petitioners, even if the report dated 02.02.2017 may be an erroneous one.    The High Court was of the view that the Adjudicating Authority did not comply with the requirement of the adherence of the principles of natural justice as prescribed in the notification.

The High Court further considered the contention of the Department that subsequently, if and when a show cause will be issued the petitioner will be made available the copies of the records does not cure a violation of the principles of natural justice already occurring.  The High Court held that the impugned order stand vitiated for non adherence of the principles of natural justice.  A post facto so called compliance thereof will not cure the proceedings which stands already vitiated.  The petitioner should have been afforded the copies of the investigation report in the proceeding which has resulted in the impugned order.  A subsequent making over of such document will not cure the illegality.  The High Court set aside the impugned order.  The High Court, however, held that this order will not prevent the authority from proceeding against the petitioner in accordance with law on the basis of the self same materials.